Springs Industries new deal expected to go well, especially with investor rollover

By Sara Rosenberg

New York, Nov. 5 - Although Springs Industries Inc.'s $290 million term loan B was presented to lenders on Friday with price talk of Libor plus 325 basis points, some are already anticipating the tranche's pricing to head down by 25 to 50 basis points before the deal closes.

Springs Industries' $490 million credit facility (Ba3) also contains a $150 million revolver talked at Libor plus 275 basis points, which "I think SunTrust has already committed to," a fund manager said, and a $50 million term loan A talked at Libor plus 275 basis points.

"I'm assuming this deal will probably go well so I'm assuming [the B] will go down to that 300 or even 275 area," the fund manager told Prospect News. "This is just a way for them to lower their interest rate. The current B loan is at 400 and the A loan is at 350. For the rating in this market it's still a pretty decent spread.

"We're already in the existing deal. We're happy with the company. It has a conservative management team that focuses on paying down debt. Original sizes of their existing deal are $200 million revolver, $200 million A and $250 million B. There's $223 million outstanding on the B, $113 million outstanding on the A and $19 million outstanding on the revolver..

"I can't imagine anybody that's in [the existing deal] not trying to rollover. I would try to increase my position if possible but given the size of the existing deal and the size of this one, I don't think it would be possible."

The only somewhat negative factor about the deal is the competitive nature of the industry in which the company operates and the expectation that the sector may get even more competitive in the near future.

"It's a competitive industry. WestPoint, Dan River, they're all struggling. Quotas on imports will be coming to an end at the beginning of 2005. Consumers will benefit and the company will be faced with more competition because manufacturers in China have lower costs," the fund manager explained.

JPMorgan and Wachovia are the lead banks on the refinancing deal, with JPMorgan left lead.

The term loan B is being offered to investors at par. Commitments are due Nov. 22.

Springs Industries is a Fort Mill, S.C., home furnishings manufacturer and marketer.

Northwest to take time

Syndication of Northwest Airlines Inc. $975 million credit facility (B1/B+) is expected to take "a lot of work and a lot of time" since investors will need to look at the industry risks before throwing their money into the deal, according to a market source.

Some issues facing the new deal are high fuel prices and inability to raise rates because of competition from cheaper carriers.

The facility consists of a $675 million five-year term loan A talked at Libor plus 550 basis points and a $300 million six-year term loan B talked at Libor plus 750 basis points. Both term loans contain call protection of 103 in year one, 102 in year two and 101 in year three.

The company held a call on Friday to discuss collateral valuations and launched the deal to investors this past Wednesday.

JPMorgan and Citigroup are the lead banks on the deal, with JPMorgan on the left, and Deutsche Bank is involved as well.

Proceeds will be used by the Eagan, Minn.-based airline company to refinance existing revolver debt. The company currently has a $725 million five-year revolver due October 2005 and a $250 million 364-day revolver due October 2004 and renewable annually at the option of lenders. The revolvers carry an interest rate of Libor plus 325 basis points.

PacifiCare sets launch

PacifiCare Health Systems Inc. has scheduled a bank meeting for Monday to launch its proposed $750 million credit facility (Ba2/BBB-), according to a market source. JPMorgan is the lead bank on the deal.

The deal was first announced in mid-September, and timing on the launch was fluid ever since then, with some previously anticipating it to be an October event.

The facility consists of a $550 million six-year term loan and a $200 million five-year revolver. Price talk on the deal, according to previous company discussions, is Libor plus 175 basis points or possibly even cheaper. This price talk was based on the credit rating upgrades received from both Standard & Poor's and Moody's Investors Service.

Proceeds from the term loan will be used to fund the acquisition of American Medical Security Group (AMS), a Green Bay, Wis., provider of individual and small group insurance products to members in 33 states and the District of Columbia, to refinance the roughly $150 million term loan PacifiCare has outstanding and to refinance roughly $30 million of outstanding AMS debt.

The revolver is expected to be undrawn at closing.

Immediately after giving effect to the transaction, PacifiCare's debt-to-capitalization ratio will temporarily increase to a level slightly in excess of 30%.

It is anticipated that the acquisition will be completed by early 2005, subject to approvals of AMS shareholders, the Wisconsin and Georgia Departments of Insurance, and compliance with provisions of the Hart-Scott-Rodino Act, as well as other customary approvals.

On Friday, AMS announced that the Antitrust Division of the Department of Justice and the Federal Trade Commission granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act for the merger.

Furthermore, AMS scheduled a special meeting of shareholders for Dec. 2 to approve the proposed merger.

PacifiCare Health Systems, based in Cypress, Calif., is a consumer health organization.

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